Housing Solution

Why this is needed:

Everyone has a natural right to shelter. We also have a natural right to credit (capital), which is defined as stored or accumulated labor and represents the cooperation of all to serve the needs and desires of each. People and especially families need homes they can afford to buy, afford to maintain and afford to repair, if needed. However, even in countries considered wealthy, there is a scandalous lack of adequate housing for much of the populace due to excessive costs of properties, mortgage interest and rents. Further, the concept of market value skews prices by applying a false monetary evaluation based on the average price of all homes, traded at market price instead of the actual cost price of the individual home.

Solution:

1. Reform the mortgage markets, converting them to domain loans issued by the Trust (the global repository for all assets of the planet, with guardianship by the Trustee).
2. Reduce the transactional value of a home to its replacement cost plus ten percent (10%). Lowering of the price of a home eliminates the rent (premium price of land) associated with market pricing in which the new buyer pays a premium to the old owner, which represents a form of wealth transfer or speculative rent from the new to the old and which has inflationary impact.
3. Replace existing mortgages at remaining principal balance. The new domain loan is issued at replacement cost and at a fixed two percent (2%) simple interest rate. An interest rate that is simple interest, not compound. The interest rate is the price of capital.
4. The term of the domain loan can be extended to thirty (30) years.
5. Reduce the financial qualification requirement of buyers by lowering the price of a home to replacement cost and firming interest rate (price of capital) at a low level. This increases homeownership.
6. In the event of payment-default by the loan recipient, the interest payment shall accrue to the outstanding principal.
7. Defaulted property taxes can be paid by the Trust and added to the outstanding balance of the principal; thus, the State cannot seize the property. This provides time for the loan recipient to choose between available restructuring options that may include relocation and sale of the property.
8. Upon sale, the remaining balance of the domain loan must be repaid from the proceeds of the sale.
9. Even under foreclosure, which results in a forced sale; the loan recipient retains equity rights (accumulated capital) and his/her share of the proceeds from the sale.

Who gains:

The investor of mortgage (bank or private lender) recovers the entire investment, as would happen in any refinancing. Having their capital back, they are free to deploy it in any way they choose. Homeowners’ reduction of debt service (interest and principal) frees funds for purchase of other needs and desires, including savings. Savings and principal are forms of capital created through the labor of the homeowner (wealth). Low-income individuals and families gain the ability to become home/property owners. Since the Trust grants right of use of a home while retaining title, houses can be built for the homeless, allowing the occupants to pay principal and accrue their own capital, which becomes available to them upon sale of the house, and enables them to trade up their real-estate accommodations if they so choose. If the rental property is funded by the Trust, rents can be structured to facilitate accrual of capital by the renter, who prefers not to have the complete responsibility for the care and maintenance of the housing unit. This will extend the duration of leases, which lowers the costs of re-letting. The domain loan avoids legal costs of foreclosure and provides time for curing any default (principal or property tax payment) by the homeowner. Foreclosure becomes a last resort. The homeowner retains his/her accumulated capital (equity rights) and cannot lose everything even in the event of foreclosure. This also reduces any stress and costs associated with legal fees and court action. State, County and Local taxes broaden their tax base when homes become more affordable, because more homes will be occupied instead of sitting empty. With a broader tax base, tax rates can be reduced, which lowers costs for all homeowners. Increases in home value from home improvements also increase the aggregate tax base, and increase the replacement cost while accruing capital for the homeowner. Credit ratings of buyers improve because of the lower domain loan, lower interest rate and increased savings reduces risk of default on any other loan. This reduces stress levels and enables better lifestyles for the homeowners. As this loan system bifurcates home markets into two, removal of the lower-priced Trust-sponsored housing from the more speculative housing market will increase the market values in the latter. Market value represents the average price of the (non-sponsored) homes traded at market.

Who benefits:

Local economies improve when homeowners with reduced loan-service obligation (interest and principal) upon transferring from mortgage to domain loan, use their freed-up cash to consume other products and services from the community. This can only strengthen a local economy. A stronger local economy results in the need for more capital invested in local infrastructure and to more jobs as businesses flourish. Capital supports jobs, jobs require capital, jobs and capital provide an upward-spiraling cycle that supports growth. Some of this reduction in loan service obligation can be applied to savings. Savings is liquid capital readily available to the homeowner for use at his/her discretion. In the meantime, these savings funds are held within a bank or other savings institution and can be used as capital to fund projects by others. Some of this capital may be used to maintain or expand the home, improving lifestyles. Moreover, this savings can grow for retirement, to fund the homeowner’s estate, to enable travel, all of which benefit the homeowner and others besides. Because the price of the home remains permanently at replacement cost, uncertainty of home price is removed, allowing the price to float with inflation (or deflation) of home building and home improvement costs. Although it does not eliminate downward exposure to equity, it removes speculative upside in favor of building a floor under the homeowner’s capital investment. From interest payments and price of capital, the Trust has funds for managing its portfolio of domain loans. Extra interest income provides the capital to expand the domain loan program, which in turn increases home ownership. The ability for homeowners to remain in their homes during a recession reduces the number of foreclosures, keeps home prices higher, and limits the replacement of homes needed to restore the economic base. Widening of access to capital improves social justice because more people have their living space and are accumulating capital/wealth.